Investing.com -- UBS on Friday downgraded Xpeng Inc (NYSE:XPEV) to “sell” from “neutral” as it views the stock’s rally has overextended and downside risks are not fully reflected in the current valuation.

Analysts raised their price target to $8.80 from $8.20, which is still more than 30% below its current trading level.

While XPeng is showing promising momentum with its new models and cost optimizations, the note suggests that these positives are already "priced in” whereas the downside risks around valuation, subsidy dependence, extended-range electric vehicles (EREVs) execution, are not yet baked into the stock.

XPeng's stock has risen over 50% since September driven by strong order intakes and delivery numbers for its newly launched MONA M03 and P7+ models, which exceeded market expectations.

UBS noted vehicles’ competitive pricing and improved features and generous scrappage subsidies in China behind the demand for these lower-priced EVs.

UBS pointed to CPCA data, according to which the average vehicle prices in China declined to Rmb168k in Oct from Rmb186k in H124, as scrappage subsidies encouraged volume contributions of entry-level models to rise sharply.

XPeng is trading at 1.5x 2025E price-to-sales (P/S), which is significantly higher than competitors like Nio (NYSE:NIO) (0.9x) and Li Auto (NASDAQ:LI) (0.7x).

“While we share the market's excitement for XPeng's new EV momentum and fast cost optimization, we believe the upside is more than priced in and caution investors against downside risks not yet priced in,” analyst wrote

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